Hewlett-Packard Co., Royal Dutch Shell PLC and Rio Tinto PLC are all potential takeover targets as M&A activity worldwide continues to heat up, says Citigroup Global Markets.
Global strategists at the U.S. investment bank said mergers and acquisitions, which have already hit US$1-trillion, are on the increasebecause of three catalysts: valuations, funding and confidence.
Expecting more deals to come, they came up with a list of potential targets by analyzing company metrics such as shareholderconcentration, leverage and free cash flow yield and pre-tax earnings.
Of the latter, they said an acquirer, if borrowing the entire equity market capitalization of the target firm, could use that company’s existing pre-tax, after-interest earnings to fund the interest cost of the new debt.
“While most deals are not generally exclusively debt funded, this approach is a good starting point to whittle an investable universe down to a sub-set of possible targets,” they said in a report.
“In fact, the recent transactions or open offers have been more cash orientated and potentially for cash-rich US companies there maybe the motivation to use cash for acquisitions rather than be taxed on cash repatriation where they have it in overseas subsidiaries.”
In addition to the above-mentioned names, potential takeover targets also include: Valero Energy Corp., Cigna, Humana Inc. And Delta Air Lines Inc. in the United States; ENI SpA, Maersk Group and BP PLC in Europe; Aisin Seiki Co. Ltd., Isuzu Motors Ltd., Sekisui House, Japan Airlines Co. Ltd. and Bridgestone Corp. in Japan; Keppel Corp. and Sembcorp Industries Ltd. in developed Asia; and Woodside Petroleum Ltd. in Australia.
“We emphasise that we can highlight potential takeover opportunities, but the chance to realise any opportunity is a function of corporate governance and other factors that are not considered in this [analysis],” the strategists added.
[Ref: royaldutchshellplc.com]